A read-through of Petronas’ 1QFY22 results shows yet another strong set of earnings – its best ever in at least a decade, thanks to the higher average realised prices for all products, in tandem with the strength in crude oil prices. Capex spending saw a mild improvement of 12% YoY to RM7.4b during the quarter and we fully expect this to gradually increase in the coming quarters in order to meet expectations of a full-year capex of RM40-50b in 2022. This is backed by Petronas’ strong net-cash position of ~RM91b, coupled with no increase in dividend commitments despite the improved profits. Going forward, we expect domestic activity level to gradually pick up in the coming quarters, with key beneficiaries to include the MCM and HUC space as well as the brownfield space. Maintain OVERWEIGHT on the sector, with PCHEM and HIBISCS highlighted as the best oil price proxies, with DAYANG and UZMA as beneficiaries from the recovery of local activity levels.
Strong 1QFY22 results thanks to higher oil prices. Petronas group recorded a strong 1QFY22 with a core PATAMI of RM21b (+63% YoY, +185% QoQ), largely helped by the higher average realised prices for all products during the quarter, in tandem with the higher underlying crude oil prices. This is also Petronas’ strongest ever quarterly earnings in at least a decade.
Capex sees some improvement YoY. Petronas incurred a capex of RM7.4b during the quarter. While this is a 12% increase YoY, the capex figure also represents a 48% decline QoQ – although we note the seasonally higher capex during the 4Q. Although the increased YoY capex is a welcomed positive, we believe more capex investments must be incurred in the coming quarters in order to meet expectations of a full-year capex of at least RM40-50b. This is backed by the group’s healthy net-cash position of ~RM91b (+35% QoQ, +65% YoY). Petronas claims that domestic capex during the quarter had risen 30% YoY, and is gradually on track to recovering to 2019 levels. Additionally, dividend commitments stayed flat at RM25b in 2022 (of which RM3b was already paid during the quarter), despite the better profits – thus building up the group’s war chest for further necessary investments in the coming periods.
Activity levels to gradually pick-up in the coming quarters. With an anticipated pick up in Petronas’ capex spend going forward, local activity levels are also expected to see some mild recovery. Earlier in our read-through of Petronas’ latest activity outlook, we have highlighted DAYANG to be one of the key beneficiaries, given the planned increase in offshore maintenance, construction and modification (MCM), and hook-up and commissioning (HUC) works. Meanwhile, we believe UZMA could also benefit from the increased level of brownfield activities – especially in an environment of higher oil prices as producers would be more incentivised to enhance well productions.
Maintain OVERWEIGHT on the sector, underpinned by the elevated oil prices, and anticipation of continued recovery in activity levels in the coming quarters. Sector picks for the moment include PCHEM (OP, TP: RM11.00) and HIBISCS (Not Rated) as proxies for the high oil prices, as well as DAYANG (OP, TP: RM1.00) and UZMA (OP, TP: RM0.54) as beneficiaries of the recovery in local activity levels.
Source: Kenanga Research - 1 Jun 2022
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UZMACreated by kiasutrader | Aug 26, 2024
Created by kiasutrader | Aug 26, 2024